CRISIL maintains valuation grade of 3/5 to Everest Kanto
CRISIL Research has come out with its report on Everest Kanto Cylinder. Due to a weak environment, and lower-than-expected revenues and operating margins in FY13, the research firm has lowered its FY14 earnings estimates.
June 21, 2013 / 17:12 IST
CRISIL Research's report on Everest Kanto Cylinder
Everest Kanto Cylinder’s Q4FY13 results were below CRISIL Research’s expectations. Consolidated EBITDA margin moved to negative 36.3 percent from negative 1.5 percent in Q3FY13 due to provision of Rs 403 mn for doubtful debt for Dubai subsidiary (EKC International FZE). The provision was made for receivables due for more than 12 months owing to the geo-political situation in the Middle East. Adjusting for the exchange loss of Rs 9 mn, Everest Kanto reported PAT loss of Rs 747 mn compared to PAT loss of Rs 258 mn in Q3FY13. Excluding the provision for doubtful debt, PAT loss was Rs 344 mn in Q4FY13. The environment remains tough due to low gas availability domestically and Iranian market being shut. Following a weak environment, and lower-than-expected sales and EBITDA margin for FY13, we reduce our FY14 earnings estimates. We maintain the fundamental grade of 2/5.Revenues impacted as sales from Dubai and China operations declined
Consolidated revenues declined 8.8 percent q-o-q to Rs 1,239 mn following 15 percent and 58 percent q-o-q drop in revenues from Dubai and China operations, respectively. Revenues from India and the US operations, however, increased by 27.4 percent and 23.2 percent q-o-q, respectively.All operations continue to bleed at PBIT level
Although revenues from India and the US operations grew sequentially, PBIT loss at these operations increased q-o-q. China operations’ PBIT loss increased to Rs 52 mn in Q4FY13 from Rs 32 mn in Q3FY13 owing to a 58 percent q-o-q decline in revenues. Dubai operations made a provision of Rs 403 mn for doubtful debt in Q4FY13 (compared to Rs 15 mn in FY12 on a consolidated basis) - for receivables due more than 12 months owing to the geo-political situation in the Middle East. We believe this large provision is a one-time expense; chances of recovering these receivables remain difficult in the current challenging environment.Inventory levels though reduced, still high – a key concern
Inventory, though reduced to 308 days in FY13 from 345 days in FY12, is still high. The working capital cycle remained stretched at 315 days in FY13.Declared dividend of Rs 0.2 per share
Despite losses, Everest Kanto proposed a dividend of Rs 0.2 per share for FY13, resulting in a dividend yield of 1 percent.Earnings estimates lowered; fair value reduced to Rs 16 per share from Rs 25
Due to a weak environment, and lower-than-expected revenues and operating margins in FY13, we lower our FY14 earnings estimates. As a challenging macro environment has lowered visibility on Everest Kanto’s future business, we have changed our valuation method from DCF to price-to-book. Applying 0.3x on FY14 book and lowering of earnings estimates, the fair value is Rs 16 per share (from Rs 25). At CMP of Rs 17, our valuation grade is 3/5.To read the full report click on the attachmentDisclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.CRISIL Limited. All Rights Reserved. Published under permission from CRISIL"
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